The administration of its fixed-price contracts for World War II forced the Army to
come to grips most completely with the basic
issues of wartime pricing policy. As the nation moved rapidly through the defense
period into a wartime economy, many of the
functions of the traditional price system were
supplanted to an unprecendented degree by
direct controls. The allocation of basic industrial materials, to facilitate both the
creation of industrial capacity and the production of finished munitions, was accomplished increasingly by administrative decisions and procedures stemming directly
from the character of national war production objectives. The maintenance of the
general price level for civilian-type products
as well as for materials and supplies entering
jointly into civilian and war goods was accomplished chiefly by controls set up and
administered by the Office of Price Administration. The organization of production
and the application and modification of
technology within productive establishments were determined increasingly by criteria of engineering efficiency and feasibility,
the necessities of conservation and substitution, the rapidity of invention resulting from
the forced draft of scientific research and
development, and other factors directing the
use of real resources independently of considerations of price.

This independence of basic economic decisions from price considerations was, however, only partial, and it varied in degree
from sector to sector of the total economy
depending upon the necessity and practicability of alternative methods of control.
After Pearl Harbor, when the supreme mandate upon the procuring agencies was the
provision of adequate munitions in time to
win the war, the role of price in placing most
prime contracts was seemingly relegated to
a minor position. But there was one pricing
consideration so fundamental and all-pervasive for all military procurement that it
was simply taken for granted. This was the
requirement that prices in military contracts
be adequate at all times to cover costs and
permit the effective prosecution of the war
production program. It was this requirement, rather than the "greed of munitions
makers" or an unexplainable accumulation
of one-directional errors, which resulted in
the development of widespread overpricing
in the year following America's entry into
the war.

The CPFF contract may be regarded in
this context as a device to outflank the
formal problem of advance price determination while guaranteeing the coverage of all
costs. Loosely negotiated fixed-price contracts achieved a substantially similar guarantee while at the same time observing the
formality of advance agreement upon price.
But neither the evasion nor the purely nominal discharge of the traditional requirement
that contract prices be determined in ad-

Notes for this page

Questia, a part of Gale, Cengage Learning. www.questia.comPublication information:
Book title: The Army and Economic Mobilization.
Contributors: R. Elberton Smith - Author.
Publisher: Office of the Chief of Military History.
Place of publication: Washington, DC.
Publication year: 1959.
Page number: 311.

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